Question

Lynch Company owns and operates a delivery van that originally cost $46,400. Lynch has recorded straight-line depreciation on the van for four years, calculated assuming a $5,000 expected salvage value at the end of its estimated six-year useful life. Depreciation was last recorded at the end of the fourth year, at which time Lynch disposes of this van. Compute the net book value of the van on the disposal date.

Answer 1

$18,800.

Step-by-step explanation:

To know the net book value of the van on the disposal date, we need to calculate the accumulated depreciation first. The annual depreciation expense is calculated as below:

Annual depreciation = (Original cost - Salvage value)/Useful life

= (46,400 - 5,000)/6.

= 6,900

Accumulated depreciation after 4 years = 6,900 x 4 = 27,600

Net book value on disposal date = Original cost - Accumulated depreciation = 46,400 - 27,600 = $18,800.